FIP 19 – Revamp veFXS Yield Distributor

Summary:

Subsidize the veFXS yields with 2,000 FXS/day from the community farming allocation, and change the FXS1559 spec to use 20% of the profits to burn FXS and the remaining 80% distributed to veFXS yields.

Background & Motivation:

The veFXS system is currently returning 17% APR after FXS pumped by over 2x the past month. Since the yields from the Investor AMO are denoted by yields on stablecoins, the FXS1559 AMO buys back less FXS as the price goes up.

Since the current implemented FXS1559 spec that burns 50% of the bought back FXS and distributes the other 50% to the veFXS holders was implemented, FXS price increase has lead to more buyback needed in order to fund the veFXS yield distributor, currently set to 4,752 FXS/day. To maintain protocol collateral growth from Investor AMO profits, this proposal subsidizes the veFXS yield using community farming allocation and to allocate more FXS to be distributed rather than burned.

For: Revamp veFXS Yield

Against: Do nothing

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I support this - love that we are constantly iterating to keep things in balance

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Agreed. I am also FOR this.

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This is a bad idea!

If you want the protocol to caputure value, this is definitely not the way to go.

Look at it this way. Our long term value is in what we are able to attract and store in the protocol. Not quick payout schemes to veFXS holders. View the payouts as costs where we currently store 50% in protocol through FXS 1559. This new proposal will merely decrease our ‘bottom line’ by introducing higher costs for our protocol.

The protocol is being measured in how we are able to generate and store value for FXS holders long term.

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This is the worst proposal I think I have ever seen in FRAX history.

  1. veFXS is about voting power. Then we decided to give 50% of the project earnings only to veFXS staker. This was a success as it curbed the super high inflasion built into FXS. But now, with FXS prices on the rise, all the veFXS stakers are crying their APR is not high enough, so you propose we subsidize them with community FXS. COMMUNITY is the key word. NO, I say. veFXS already has up to 4x voting power and now they want to use them to take the community’s FXS.

  2. Crying about APR is just low. I would imagine people staking veFXS understands that there are two variables that determin the APR. 1. How many FXS are staked, and 2. protocol earnings in $ terms. When 1 goes up and the protocol earnings are no longer enough to buy the same amount of FXS (because the price went up), what will happen? APR will go down. Accept this. (and dont worry, it will come back when the protocol earnings go up in the future)

I my eyes there are two proper ways to handle protocol rewards: Keep them inside the protocol or pay it back to ALL investors. And when I say all, there is only one way to do this fair to everyone: FXS burning.

If you support this proposal you are supporting the Sherif of Nottingham collecting taxes and giving them to a small number of people. This has absolutely ZERO value for the FRAX protocol.

When listed companies earn money, they have a choice. Pay it back to the investors OR invest in new initiatives inside the company in expectations of makeing even more money in the future. You dont need an economics degree to figure that out. What this proposal does is introduce a new option. Just take all the company profits and give it to a small number of investors. This sounds awfully a lot like Sovjet communism to me - especially because the excuse for doing so is that the veFXS holders would just like a higher APR. WTF.

Jason, I suggest you drop the proposal entirely. And if your veFXS whale friends tell you not to, then at least have the curtesy to break up the proposal in two so that we can vote independently for steling the community’s FXS and stealing the protocols profits and giving both to the rich.

The community allocation is currently on track to emit less FXS than the original target in the first year after cutting the CR boost on farming. The FXS allocation has been set since genesis, so the only debate at this point is where to put it and at what amount. veFXS stakers obviously have more at stake in the protocol compared to FXS holders since they have no ability to sell their locked stakes. If a pump occurs, they get zero chance to exit. If a dump occurs, their only option is to wait until the lock expires.

APR on veFXS is not simply a zero-sum way to suck money out of the protocol. By keeping APR attractive, you incentivize actors in the protocol to stake their FXS, thus further aligning them with the efforts of all FXS holders, staked or not. The value created here by a small (2,000 FXS/day) veFXS subsidy is much greater than what currently is paid for liqudiity – 16,438 FXS per day is emitted for the FRAX/FXS Uni v2 pool, for reference. On FXS price increases, either the veFXS APR drops, thus further discounting time-commitment participation in the protocol, or there must be more profit burnt for the buybacks.

Furthermore, burning FXS using profits is not exactly the best long-term strategy for the protocol. As new and potentially industrial-sized farmers come into the system, they can lend their liquidity for FXS rewards to be instantly dumped. Buybacks give these farmers direct exit liquidity, compared to veFXS dividends which require an actual time commitment to the protocol itself. Let’s not forget that the FXS distribution is paying the liquidity providers for the service of their liquidity. With over $300m TVL in the curve pool, I think it’s safe to say liquidity is no longer the most urgent cost for the protocol.

Since anyone is able to stake their FXS and receive the exact same yields, I don’t see in any way how you can call this cronyism @MBDenmark. The FRAX supply and FXS scarcity rely on long-term holders, of which veFXS is an incentive mechanism. We can keep focusing on subsidizing FXS farming dumpers, or we can instead shift towards rewarding up-front locking of FXS. This is literally tweaking the protocol’s emissions to keep it responsive to changing market conditions.

2 Likes

@jasonhuan Can you help me understand how taking protocol profits and paying them to veFXS is good for the protocol, because I just dont see it. Also, I realise we dont have the same crazy high inflasion as we did in the early days (I was an early staker enjoying the CR boost). This was stopped. Also, in my perspective closing down the ETH v2 pool out of the blue was not right - at least the timing was completely off as there was no option to move to v3 and I can only imaginge the IL many investors suffered. I can only interpret this as a sneaky, undercover plan to free up some inflasion (aka community FXS) and then move some of them to veFXS. I fully get the intention to reward people from locking up their FXS, and this was to some extent needed as inflasion around the 6 month birthsday was getting out of hand. What I am objecting to is increasing it from 50% to 80% as it is not needed anymore. What we should focus ALL attention on, is how can we invest the protocol earnings (which you want to give to veFXS) in the protocol so that FRAX adoption goes through the roof? What about giving 40,000 FXS as a subsidy for a major exchange to launch FRAX trading pairs? That is just one month of the commission FXS you plan to give away on top of the profits!

1 Like

this would affect EIP-14 (allocate AMO profits to a ETH pool).

that EIP was a 60 day trial, with a vote at the end to extend it.

i personally think this is a bad idea, what happens if the APR drops again after this goes live? do we then vote for even more rewards to be added?

i like the idea of the emissions to be slowed down as this can be used to provide rewards for a longer time frame and gives current and new investors reason to buy and lock up funds for many more years to come.

We are both in agreeance that FRAX adoption is the key goal.

I want to address the idea of protocol value “leaving” the system – stock buybacks and dividends are already two of the primary tools a traditional corporation uses to pay back investors. In a purely economic sense, they do not differ – buying back shares on the open market is akin to paying out the value gain through a dividend.

FXS1559 already pays out protocol profits through these two methods – the topic here is over how to allocate it, specifically so that it’s less susceptible to dumping behavior, since our veFXS “dividends” require a time-lock. The rebalancing is a suggestion towards that, although leaving it open-ended gave it unintended potential for a slippery slope situation, so criticism there is definitely merited.

An algorithmic version of an APR adjuster would be a more complete design.

The ETH pair suggestion was done by community members Justin Bram and Brazy.

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Loud minority is really annoying. Lets vote on this already and put this to rest.

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A better way would be to distribute AMOs profits in $FRAX this way we get supply expantion which burns $FXS, increase Frax liquidity, and gives flexibility for investors to do whatever they want with their yield, as those who want to buy more FXS can do so.

It is worth noting, that after the drop in APR for veFXS, which this suggestion argues will limit interest in veFXS, an addition 2 million FXS has been locked in veFXS. So, this argument doesn’t hold up.

That’s because veFXS is already incentivized.